Senate Blocks Democrats' Attempt to Loosen Cap on State, Local Tax Deductions
October 23 2019 - 5:14PM
Dow Jones News
By Richard Rubin
WASHINGTON -- The Senate blocked Democrats' attempt to loosen
the $10,000 cap on state and local tax deductions, showing just how
tough it will be to change a rule that has frustrated lawmakers and
residents of New York, New Jersey and California.
The vote was 43-52, almost entirely along party lines. Sen. Rand
Paul (R., Ky.,) voted with the Democrats.
Democratic presidential candidate Michael Bennet of Colorado was
the lone member of his party to vote against a resolution that
would effectively change the cap. He warned that benefits of repeal
would be tilted heavily toward high-income households and that the
same money could be better used to directly help low-income
households. Rivals Cory Booker of New Jersey and Amy Klobuchar of
Minnesota voted with the bulk of the party to weaken the cap. Sens.
Elizabeth Warren, Bernie Sanders and Kamala Harris, who are also
vying for the party nomination, didn't vote.
Congress imposed the cap in the 2017 tax law that passed without
a single Democratic vote, using the money it generated to lower tax
rates. Although many people affected by the cap received net tax
cuts from the law, some didn't, and the cap became a political
rallying cry that helped propel Democratic candidates in 2018.
"New Jersey families shouldn't have to foot the bill for massive
handouts for big corporations," Sen. Robert Menendez (D., N.J.)
said on the Senate floor.
Wednesday's vote wouldn't have repealed the cap. Instead, using
a fast-track procedure that let Senate Democrats demand a vote, it
would have repealed a Treasury Department rule implementing the
cap.
New York, New Jersey and Connecticut, whose taxes are among the
highest in the U.S., had set up programs that would have let
residents get state tax credits for donations to government-aligned
charitable funds.
Those programs would have effectively let taxpayers convert
their nondeductible state taxes into deductible charitable
contributions. The Treasury rule shut that down, generally denying
federal charitable deductions on the grounds that the taxpayers
were getting a benefit in exchange. The rules also pinched
pre-existing credit-for-donation programs in states such as Georgia
and Alabama that aided schools and hospitals.
Republicans relished a chance to use Democrats' tax-policy
talking points against them.
"They want to perpetuate the scam that is a massive giveaway to
the wealthiest Americans," Sen. Pat Toomey (R., Pa.), said on the
Senate floor. "It's amazing."
Even if Wednesday's plan had succeeded and gotten through the
House, President Trump could have vetoed it.
Republicans argue that the unlimited deduction gave a federal
subsidy to high-tax jurisdictions. Democrats say the cap is hurting
middle-income families, property values and state coffers.
Separately, House Democrats have been developing a plan to
repeal or change the cap. They haven't unveiled it yet, and they
face challenges ahead.
Full repeal of the cap would deliver more than half the benefits
to the top 1% of households, according to the Tax Policy Center, a
Washington group run by a former Obama administration official.
That impact could be offset by raising top tax rates across the
board or making other progressive tax changes, Democrats have
said.
Still, Democrats from the Northeast may have trouble persuading
those from lower-tax states to back any plan that would shift the
federal tax burden from high-income New Yorkers to high-income
Floridians.
Write to Richard Rubin at richard.rubin@wsj.com
(END) Dow Jones Newswires
October 23, 2019 16:59 ET (20:59 GMT)
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